JPMorgan believes in these stocks
JPMorgan Head of Global and European Equity Strategy Mislav Matejka said in a note Monday that, while some economic activity indicators have peaked, the market is “likely to get comfortable” with above-trend growth for the rest of the year, as consumer spending and capital expenditure continue to support risk assets.
Importantly, Matejka believes that inflation fears will subside after the next one to two elevated readings, allowing the US Federal Reserve to maintain its view that inflation is “transitory” even as it begins to taper its asset purchases in early 2022.
JPMorgan prefers cyclicals and value stocks to defensives. Value stocks are perceived to be undervalued and to benefit from an economic recovery; they frequently include cyclicals — stocks whose trading patterns are influenced by the business cycle. In the meantime, defensive stocks typically provide consistent earnings and dividends regardless of stock market conditions.
Regionally, JPMorgan predicts that the eurozone will continue to outperform the United States.
Saint Gobain, Andritz, Signify, and Rexel were among its industrial stock picks. Carrefour, Carlsberg, Coca-Cola Hellenic, and Danone were among JPMorgan’s consumer staples picks.
Health care was also heavily represented in the basket, with stocks such as Fresenius, Roche, and Sanofi.
Materials stocks included in JPMorgan’s basket included Anglo-American, BHP Group, and Arcelormittal, while consumer discretionary stocks included BMW, Barratt Developments, and Marks & Spencer.
Engie and EDP were among the utility stock picks, while Micro Focus and Worldline joined Austrian chipmaker AMS among the bank’s IT stock picks.
ProSiebenSat.1 and Vodafone were the only telecoms companies on JPMorgan’s list, while Inmobiliaria Colonial was the only real estate company and BP was the only energy stock.
Chipmakers were notorious for failing to keep up with demand during the pandemic, resulting in a global shortage that affected all areas of the market. However, JPMorgan estimates that AMS’s earnings-per-share will increase by 103% in 2022 as the economy stabilizes.
Materials, consumer discretionary, staples, industrials, health care, and financials are the key sectors across the bank’s top European equity picks, with the latter being the most heavily represented in JPMorgan’s basket of stocks.
Meanwhile, British retailer Marks & Spencer is expected to increase earnings per share by 827 percent. To calculate profitability, divide a company’s profit by the number of outstanding shares of its current stock.
Matejka stated during the inflation debate that the recent “unhealthy feedback loop” between rising commodity prices and inflation expectations could break.
He noted that many investors were buying commodities to hedge against rising inflation expectations, which were fueled in part by rising commodity prices. If this breaks, investors will view the current cycle as “more sustainable,” as the Fed will be less likely to “blink,” he added.
“The spread between inflation forwards and yields remains wide and is likely to narrow from both sides. This calls for higher real rates in the second quarter, and we believe it is premature to return to Tech and should instead focus on Value,” Matejka said.
In terms of financials, the bank is “overweight” in companies such as Barclays, Societe Generale, ING, and UBS.
BoA believes in these stocks
New investment ideas from Bank of America arrive as the third quarter begins.
Each quarter, the Wall Street firm publishes a list of ten high-conviction, short-term stock recommendations.
“These high conviction ideas are based on our views of potential significant market and business-related catalysts that we believe will affect these stocks in the quarter,” according to Anthony Cassamassino of BofA.
There are eight buy recommendations in this quarter’s group.
FedEx is one of BofA’s buy recommendations. In a note issued on Tuesday, the firm stated that the courier’s shares are currently undervalued in relation to earnings. BofA anticipates that e-commerce demand will remain strong even after the economy reopens, resulting in continued strong package volume for FedEx.
First Solar is another top pick for the third quarter that is rated as a buy. BofA believes the solar company is well-positioned to benefit from tailwinds such as President Joe Biden’s infrastructure stimulus package. First Solar shares could rise 22 percent from here, according to the bank, which has set a price target of $111 for the stock.
Exxon Mobil is also included on BofA’s list with a buy rating. The company was named the bank’s top major oil pick. According to the firm, Exxon Mobil is “the only major with the ability to grow cash flow and expand free cash flow in order to support sustained dividend growth while reducing debt and expanding returns.”
Bank of America also included two sales suggestions.
One of the stocks with an underperform rating is U.S. Steel. Steel prices in the United States, according to the firm, are in a bubble and are “clearly unsustainable.” According to BofA, the high steel prices are due to a lack of supply due to high post-pandemic demand. “Historically, this ends badly when supply catches up with demand,” according to Timna Tanners of BofA.
